A landmark moment in India’s economic history is on the horizon, as Union Finance Minister Nirmala Sitharaman is likely to table the much-anticipated Income Tax Bill, 2025 in Parliament on August 11, sources told CNBC TV18.
This legislative effort aims to replace the six-decade-old Income Tax Act of 1961 with a modern, streamlined law designed to simplify the country’s tax system.
The new Bill, first introduced in the Lok Sabha on February 13, 2025, has been lauded for its potential to usher in a new era of tax administration. Its core objectives are to reduce litigation, enhance clarity, and make compliance easier for taxpayers across India.
Aim of the new bill: A simpler, shorter law
One of the most striking features of the new legislation is its dramatic reduction in size and complexity. The new Bill is expected to be nearly half the size of the existing law, with a word count of 2.6 lakh compared to the current 5.12 lakh. The number of sections will drop from 819 to 536, and chapters will be reduced from 47 to 23. This leaner structure is intended to make the law more accessible and understandable for both taxpayers and tax professionals.
“The aim is to modernise the tax system to match current economic realities and reduce ambiguities that often result in disputes and legal interpretation,” a source familiar with the matter stated.
Key changes for taxpayers
Among the most significant changes for taxpayers is the proposal to replace the dual concepts of “previous year” and “assessment year” with a single “tax year.” This move seeks to align the process of earning income and filing taxes within a single financial year, eliminating a source of confusion for many.
The Bill also incorporates provisions for digital documentation, clearer compliance guidelines, and modern dispute resolution frameworks, reflecting a commitment to a more digitally integrated and efficient tax system.
Select Committee’s influence
The final draft of the Bill comes after extensive scrutiny by a Select Committee of the Lok Sabha, chaired by BJP MP Baijayant Panda. The committee, which submitted a comprehensive 4,500-page report, made 566 suggestions aimed at providing further relief and clarity.
Some of the notable suggestions include:
- Relief for Homeowners: The report proposes a more equitable formula for calculating deductions on house property income and suggests extending the deduction for pre-construction interest to let-out properties.
- Protection for Small Taxpayers: A key recommendation is to exempt small taxpayers with incomes below the taxable limit from being forced to file returns solely to claim refunds for deducted TDS.
- Support for Businesses: The committee suggested clearer tax rules for R&D investments and tax relief for businesses involved in managing biodegradable waste.
- Reduced Litigation: The report recommended the reinstatement of phrases like “in the circumstances of the case” for tax avoidance rules, aiming to provide more safeguards and reduce legal disputes.
While the new Bill does not propose any changes to the existing tax rates or slabs, the focus on simplifying the legal framework is expected to have a profound impact on tax administration.
With the final tabling likely to be scheduled for August 11, taxpayers, businesses, and professionals are watching closely what could be the most significant tax reform in over six decades. The new legislation is slated to take effect from April 1, 2026, once it successfully navigates the parliamentary process.
